Elon Musk Just Exercised $100M Tesla Options | Hacker News Reader

Elon Musk Just Exercised $100M Tesla Options

techcrunch.com

3 pointsabalone4 comments

He paid $50M to exercise $100M of options, but didn't sell them.

Why did he do this? What are the advantages compared to holding on to the options until ready to sell?

I can think of one: to qualify for the lower capital gains tax rate if he waits a couple years to sell. (I'm guessing that most of that $50M is the Alternative Minimum Tax, which makes me wonder, would be refunded some of that in the capital gains scenario?)

But methinks there might be another reason. Were those options expiring? Does exercising them give him more control in the company? Is it simply a statement of confidence?

Current speculation is that he wants to be able to afford Super Bowl tickets.

Since the spread between the strike price and the current market value gets a tax treatment like income, it can pay off to exercise options early if you want to hold the stock and are confident the price is going to go up. He just paid $3.5M for stock that is worth $102M, so he's got to pay taxes on about $98M of something income-ish.* If hypothetically he waited and the stock doubled, he'd have to pay tax on a much larger spread.

* I say something income-ish because whether it's actually called income depends on the option type and AMT complexities that I can't really rattle off off the top of my head, but suffice it to say the spread is taxed in a very income-like way.

Right, that's what I was getting at with the capital gains treatment. I also am not sure off the top of my head, but at the very least any gain from here on out is going to taxed at the capital gains rate (20%), assuming he waits a year or two.

I just feel there's more to it than some tax savings given the massive amount of capital it requires ($50M!), which could be more productively invested. I'm guessing those options are expiring and/or it's a PR boost.

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